To put it plainly…one of the biggest mistakes you can make with your estate plan is to allow your estate planning documents to become outdated.
I always tell my clients that an estate plan is a “living breathing thing” and should be reviewed at strategic times in life, or at least every 3-5 years. It is not enough to have the documents drafted, sign them, and then put them on a shelf, never to be seen or reviewed until someone dies or becomes unable to revise them due to illness or dementia.
Here are four ways in which your documents may have become outdated and four scenarios from my practice where this actually happened and caused problems.
1. Documents that require a named beneficiary. Although we always ask, sometimes clients “forget” about beneficiaries who they have named named in various entities. And sometimes the beneficiary pre-deceases the person naming him or her. This recently happened in a case where we had to draft some last-minute documents. The client died, unexpectedly and the beneficiary on her IRA had predeceased her. Thus, the IRA funds had to pass through her estate instead of independently of it. We had to probate her estate because of the lack of a live beneficiary to avoid it. Otherwise, we would have completely avoided probate in the matter.
2. Changes in the law. Sometimes changes in the laws that govern estate planning affect the most well-intentioned plan. I recently was handed a Will from 1996. While this Will is still valid in Massachusetts, there have been significant changes in the law since then. The Will was witnessed by three people. Today a will is witnessed by two people plus a Notary. This is called a “self-proving” will. The statute that allowed this newer type of will enables it to be signed and witnessed, and there is no need to “chase down witnesses” if there is ever a problem or a Will contest. The notary may be more easily tracked down. I have never had any issue where a Will is self-proving as to its validity. But a Will like this one, presents problems—particularly in this case where the appointees for Personal Representative (“executor”) are all now deceased.
3. Ownership of an Asset: Many people own assets jointly—either with their spouse (“tenants by the entirety”) or adult children. I have often seen transfers made from a parent to an adult child because Mom or Dad wants the child to have their most precious asset—the family home. These often happen at the 11th hour, when a parent knows they are not well. But there are both tax and long-term care benefit ramifications related to any transfer of the home or other assets to anyone other than a spouse! As one ages it is helpful to review ownership documents to ensure that any jointly owned assets don’t need to be changed—or do need to be changed—or need to be placed into a trust before it is too late.
4. Power of Attorney: It used to be that a Power of Attorney older than three years would be rejected by a bank and a brokerage house. Today that is not supposed to be the case with a valid Massachusetts Power of Attorney. The better wisdom is updating your Power of Attorney document every 3-5 years. An older Power of Attorney may not provide for dealing with digital assets; or any unusual assets you may have accumulated along the way. An incomplete Power of Attorney may not enable the agent under the power of attorney to work with agencies such as the Medicaid Agency. Or horror of horrors the person appointed as your agent has pre-deceased you, and the power of attorney is not effective. I have had clients bring me the Power of Attorney they had to purchase their home 20 years ago, unfortunately these Powers of Attorney were date stamped and limited to the real estate transactions they contemplated twenty years before. If one wishes to care for someone else’s finances, an up-to-date Power of Attorney is crucial.